Item 1.
|
|
Financial Statements
|
NOVAGOLD RESOURCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited,
US dollars in thousands)
|
|
At
February 28,
2019
|
|
At
November 30,
2018
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,777
|
|
|
$
|
21,004
|
|
Term deposits
|
|
|
139,000
|
|
|
|
146,000
|
|
Other assets
|
|
|
1,718
|
|
|
|
2,379
|
|
Current assets
|
|
|
163,495
|
|
|
|
169,383
|
|
Notes receivable (Note 5)
|
|
|
90,254
|
|
|
|
89,459
|
|
Investment in Donlin Gold (Note 6)
|
|
|
783
|
|
|
|
1,209
|
|
Other assets
|
|
|
929
|
|
|
|
878
|
|
Total assets
|
|
$
|
255,461
|
|
|
$
|
260,929
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
709
|
|
|
$
|
710
|
|
Accrued payroll and related benefits
|
|
|
616
|
|
|
|
2,545
|
|
Income taxes payable
|
|
|
190
|
|
|
|
223
|
|
Other liabilities
|
|
|
182
|
|
|
|
182
|
|
Current liabilities
|
|
|
1,697
|
|
|
|
3,660
|
|
Promissory note (Note 7)
|
|
|
98,299
|
|
|
|
96,501
|
|
Deferred income taxes
|
|
|
247
|
|
|
|
80
|
|
Total liabilities
|
|
|
100,243
|
|
|
|
100,241
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
1,960,465
|
|
|
|
1,954,861
|
|
Contributed surplus
|
|
|
82,717
|
|
|
|
87,987
|
|
Accumulated deficit
|
|
|
(1,863,627
|
)
|
|
|
(1,857,682
|
)
|
Accumulated other comprehensive loss
|
|
|
(24,337
|
)
|
|
|
(24,478
|
)
|
Total equity
|
|
|
155,218
|
|
|
|
160,688
|
|
Total liabilities and equity
|
|
$
|
255,461
|
|
|
$
|
260,929
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
These condensed consolidated interim financial statements are authorized for issue by the Board of Directors on April 2, 2019. They are signed on the Company’s behalf by:
|
|
|
/s/ Gregory A. Lang, Director
|
/s/ Anthony P. Walsh, Director
|
|
NOVAGOLD RESOURCES INC.
CONDENSED CONSOLIDATED
INTERIM STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
(Unaudited, US dollars in thousands except per share amounts)
|
|
Three months ended February 28,
|
|
|
2019
|
|
2018
|
|
|
|
|
Revised
1
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative (Note 9)
|
|
$
|
4,340
|
|
|
$
|
4,685
|
|
Equity loss – Donlin Gold (Note 6)
|
|
|
1,323
|
|
|
|
1,841
|
|
|
|
|
5,663
|
|
|
|
6,526
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,663
|
)
|
|
|
(6,526
|
)
|
Other income (expense) (Note 11)
|
|
|
(303
|
)
|
|
|
(1,370
|
)
|
Loss before income taxes and other items
|
|
|
(5,966
|
)
|
|
|
(7,896
|
)
|
Income tax expense
|
|
|
(357
|
)
|
|
|
(66
|
)
|
Net loss from continuing operations
|
|
|
(6,323
|
)
|
|
|
(7,962
|
)
|
Net loss from discontinued operations, net of tax (Note 4)
|
|
|
—
|
|
|
|
(253
|
)
|
Net loss
|
|
|
(6,323
|
)
|
|
$
|
(8,215
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities, net of $nil and $11 tax recovery, respectively
|
|
|
—
|
|
|
|
(94
|
)
|
Foreign currency translation adjustments
|
|
|
519
|
|
|
|
1,868
|
|
|
|
|
519
|
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(5,804
|
)
|
|
$
|
(6,441
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
Discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted (thousands)
|
|
|
324,749
|
|
|
|
322,291
|
|
1
See Note 4 –
Discontinued operations
The accompanying notes are an
integral part of these condensed consolidated interim financial statements.
NOVAGOLD RESOURCES INC.
CONDENSED CONSOLIDATED
INTERIM STATEMENTS OF CASH FLOWS
(Unaudited, US dollars in thousands)
|
|
Three months ended February 28,
|
|
|
2019
|
|
2018
|
|
|
|
|
Revised
1
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,323
|
)
|
|
$
|
(8,215
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Equity loss – Donlin Gold
|
|
|
1,323
|
|
|
|
1,841
|
|
Share-based compensation
|
|
|
1,531
|
|
|
|
1,949
|
|
Interest expense on promissory note
|
|
|
1,798
|
|
|
|
1,494
|
|
Foreign exchange loss
|
|
|
386
|
|
|
|
116
|
|
Deferred income tax expense
|
|
|
167
|
|
|
|
11
|
|
Accretion of notes receivable
|
|
|
(795
|
)
|
|
|
—
|
|
Loss from discontinued operations, net of tax
|
|
|
—
|
|
|
|
253
|
|
Other
|
|
|
(40
|
)
|
|
|
(32
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
773
|
|
|
|
(11
|
)
|
Accounts payable and accrued liabilities
|
|
|
(41
|
)
|
|
|
(194
|
)
|
Accrued payroll and related benefits
|
|
|
(1,929
|
)
|
|
|
(1,854
|
)
|
Net cash used in operating activities of continuing operations
|
|
|
(3,150
|
)
|
|
|
(4,642
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from term deposits
|
|
|
115,000
|
|
|
|
15,000
|
|
Purchases of term deposits
|
|
|
(108,000
|
)
|
|
|
(15,000
|
)
|
Funding of Donlin Gold
|
|
|
(897
|
)
|
|
|
(1,734
|
)
|
Other
|
|
|
—
|
|
|
|
(13
|
)
|
Net cash provided from (used in) investing activities of continuing operations
|
|
|
6,103
|
|
|
|
(1,747
|
)
|
Net cash used in investing activities of discontinued operations (Note 4)
|
|
|
—
|
|
|
|
(643
|
)
|
Net cash provided from (used in) investing activities
|
|
|
6,103
|
|
|
|
(2,390
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Withholding tax on share-based compensation
|
|
|
(1,197
|
)
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
(1,197
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
17
|
|
|
|
9
|
|
Increase in cash and cash equivalents
|
|
|
1,773
|
|
|
|
(7,023
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
21,004
|
|
|
|
27,954
|
|
Cash and cash equivalents at end of period
|
|
$
|
22,777
|
|
|
$
|
20,931
|
|
1
See Note 4 –
Discontinued operations
The accompanying notes are an
integral part of these condensed consolidated interim financial statements.
NOVAGOLD RESOURCES INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF EQUITY
(Unaudited, US dollars and shares in thousands)
|
|
Common shares
|
|
Contributed
|
|
Accumulated
|
|
|
|
Total
|
|
|
Shares
|
|
Amount
|
|
surplus
|
|
deficit
|
|
AOCL*
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2017
|
|
|
322,219
|
|
|
$
|
1,951,587
|
|
|
$
|
83,534
|
|
|
$
|
(1,744,917
|
)
|
|
$
|
(6,175
|
)
|
|
$
|
284,029
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,949
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,949
|
|
Stock options exercised
|
|
|
83
|
|
|
|
977
|
|
|
|
(977
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,215
|
)
|
|
|
—
|
|
|
|
(8,215
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,774
|
|
|
|
1,774
|
|
February 28, 2018
|
|
|
322,302
|
|
|
$
|
1,952,564
|
|
|
$
|
84,506
|
|
|
$
|
(1,753,132
|
)
|
|
$
|
(4,401
|
)
|
|
$
|
279,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2018
|
|
|
323,223
|
|
|
$
|
1,954,861
|
|
|
$
|
87,987
|
|
|
$
|
(1,857,682
|
)
|
|
$
|
(24,478
|
)
|
|
$
|
160,688
|
|
Cumulative-effect adjustment of adopting ASU No. 2016-01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
378
|
|
|
|
(378
|
)
|
|
|
—
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,531
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,531
|
|
PSUs settled in shares
|
|
|
438
|
|
|
|
2,737
|
|
|
|
(2,737
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock options exercised
|
|
|
1,443
|
|
|
|
2,867
|
|
|
|
(2,867
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Withholding tax on PSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,197
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,197
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,323
|
)
|
|
|
—
|
|
|
|
(6,323
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
519
|
|
|
|
519
|
|
February 28, 2019
|
|
|
325,104
|
|
|
$
|
1,960,465
|
|
|
$
|
82,717
|
|
|
$
|
(1,863,627
|
)
|
|
$
|
(24,337
|
)
|
|
$
|
155,218
|
|
* Accumulated other comprehensive
loss
The accompanying notes are an
integral part of these condensed consolidated interim financial statements.
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
NOTE 1 – NATURE OF OPERATIONS
AND BASIS OF PRESENTATION
NOVAGOLD RESOURCES
INC. and its affiliates and subsidiaries (collectively, “NOVAGOLD” or the “Company”) operate in the mining
industry, focused on the exploration for and development of gold mineral properties. The Company has no realized revenues from
its planned principal business purpose. The Company’s principal asset is a 50% interest in the Donlin Gold project in Alaska,
U.S.A. The Donlin Gold project is owned and operated by Donlin Gold LLC, a limited liability company that is owned equally by wholly-owned
subsidiaries of NOVAGOLD and Barrick Gold Corporation (“Barrick”).
On July 27, 2018, the
Company completed the sale of its 50% interest in the Galore Creek Partnership (GCP) and its 40% interest in the Copper Canyon
mineral property in British Columbia, Canada (together the “Galore Creek” assets). As a result, the Company presents
Galore Creek as a discontinued operation for all periods presented. Accordingly, the Consolidated Statements of Loss and Comprehensive
Loss and Cash Flows have been reclassified to present Galore Creek as a discontinued operation for all periods presented, and the
amounts presented in these notes relate only to continuing operations unless otherwise noted. For additional information regarding
discontinued operations, see Note 4.
The Condensed Consolidated
Interim Financial Statements of NOVAGOLD are unaudited. In the opinion of management, all adjustments and disclosures necessary
for a fair presentation of these interim statements have been included. The results reported in these interim statements are not
necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction
with NOVAGOLD’s Consolidated Financial Statements for the year ended November 30, 2018. The year-end balance sheet data was
derived from the audited financial statements and certain information and footnote disclosures required by United States generally
accepted accounting principles (US GAAP) have been condensed or omitted.
The functional currency
for the Company’s Canadian operations is the Canadian dollar and the functional currency for the Company’s U.S. operations
is the U.S. dollar. References in these Condensed Consolidated Financial Statements and Notes to $ refer to United States dollars
and C$ to Canadian dollars. Dollar amounts are in thousands, except for per share amounts.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Recently
adopted accounting pronouncements
Restricted Cash
In November 2016, ASU
No. 2016-18 was issued related to the inclusion of restricted cash in the statement of cash flows. The new guidance requires that
a statement of cash flows present the change during the period in the total of cash, cash equivalents and amounts generally described
as restricted cash or restricted cash equivalents. This update is effective in fiscal years, including interim periods, beginning
after December 15, 2017 and early adoption is permitted. The Company retrospectively adopted this guidance as of December 1, 2018. The
Company did not have restricted cash or restricted cash equivalents for the periods presented and adoption of this standard did
not have any impact on the Consolidated Financial Statements or disclosures.
Statement of Cash Flows
In August 2016, ASU
No. 2016-15 was issued related to the statement of cash flows. The Company adopted this new guidance effective December 1, 2018
and made an accounting policy election to classify distributions received from its equity method investee, Donlin Gold LLC, using
a cumulative earnings approach. Distributions received will be considered returns on investment and classified as cash inflows
from operating activities, unless the cumulative distributions received less distributions received in prior periods that were
determined to be returns of investment exceed cumulative equity in earnings recognized. When such an excess occurs, the current-period
distribution up to this excess will be considered a return of investment and classified as cash inflows from investing activities.
Adoption of this standard did not have any impact on the Consolidated Financial Statements or disclosures.
Classification and Measurement of Financial
Instruments
In January 2016, ASU
No. 2016-01 was issued to amend the guidance on the classification and measurement of financial instruments, which was further
amended in February 2018 by ASU No. 2018-03. The new guidance requires entities to measure equity investments that do not result
in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net
income. The new guidance also amends certain disclosure requirements for these investments. The Company adopted this standard as
of December 1, 2018 and reclassified $378 of unrealized holding gains and deferred income taxes related to investments in marketable
equity securities from
Accumulated other comprehensive loss
to
Accumulated deficit
in the Consolidated Balance Sheets.
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
Recently
issued accounting pronouncements
Leases
In February 2016,
ASU No. 2016-02 was issued related to leases, which was further amended in September 2017 by ASU No. 2017-13 and in January 2018
by ASU No. 2018-01. The new guidance modifies the classification criteria and requires lessees to recognize the assets and liabilities
arising from most leases on the balance sheet. The new guidance is effective for the Company’s fiscal year beginning December
1, 2019 and early adoption is permitted. The Company anticipates adopting the new guidance effective December 1, 2019. Adoption
of this guidance is not expected to materially increase the Company’s assets and liabilities.
Fair Value Disclosure Requirements
In August 2018, ASU
No. 2018-13 was issued to modify and enhance the disclosure requirements for fair value measurements. This update is effective
in fiscal years, including interim periods, beginning after December 1, 2020, and early adoption is permitted. The Company is currently
evaluating this guidance and the impact on its Consolidated Financial Statements and disclosures.
NOTE 3 – SEGMENTED INFORMATION
Operating segments
are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified
as the Chief Executive Officer. The Chief Executive Officer considers the business from a geographic perspective considering the
performance of our investments in the Donlin Gold project in Alaska, USA (Note 6) and, prior to its disposal on July 27, 2018,
the Galore Creek project in British Columbia, Canada (Note 4).
NOTE 4 – DISCONTINUED OPERATIONS
Galore Creek Transaction
On July 27, 2018, the
Company completed the sale of its 50% interest in the Galore Creek assets to Newmont. The Company received $100,000 on closing;
a note for $75,000 receivable upon the earlier of the completion of a new Galore Creek project pre-feasibility study or July 27,
2021; a note for $25,000 receivable upon the earlier of the completion of a Galore Creek project feasibility study or July 27,
2023; and an additional note for $75,000 receivable upon the earlier of approval of a Galore Creek project construction plan by
the owner(s). The Company has no remaining interest in the Galore Creek assets.
The Company’s share of its investment
in GCP included the following:
|
|
Three months ended February 28,
|
|
|
2019
|
|
2018
|
Net loss from discontinued operations, net of tax:
|
|
|
|
|
Equity loss – Galore Creek
|
|
$
|
—
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations, net of tax:
|
|
|
|
|
|
|
|
|
Funding of Galore Creek
|
|
$
|
—
|
|
|
$
|
643
|
|
NOTE 5 – NOTES RECEIVABLE
The Company has notes
receivable from Newmont including a $75,000 note receivable upon the earlier of the completion of a new Galore Creek project pre-feasibility
study or July 27, 2021, and a $25,000 note receivable upon the earlier of the completion of a Galore Creek project feasibility
study or July 27, 2023. On closing of the Galore Creek sale, the Company estimated the fair value of the $75,000 and $25,000 notes
receivable at $88,398, assuming payments in three and five years, respectively, at a discount rate of 3.6% based on quoted market
values for Newmont debt with a similar term. The carrying value of the notes receivable are being accreted to $75,000 and $25,000
over three and five years, respectively. At February 28, 2019, the carrying value of the notes receivable was $90,254 including
$1,856 of accumulated accretion. A contingent note for $75,000 is receivable upon approval of a Galore Creek project construction
plan by the owner(s). No value was assigned to the final $75,000 contingent note receivable. The Company determined that Galore
Creek project construction approval was not probable as of the closing of the Galore Creek sale. The Company’s assessment
did not change as of February 28, 2019.
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
NOTE 6 – INVESTMENT IN DONLIN GOLD
The Donlin Gold project
is owned and operated by Donlin Gold LLC, a limited liability company in which wholly-owned subsidiaries of Barrick and NOVAGOLD
each own a 50% interest. Donlin Gold LLC has a board of four directors, with two directors selected by Barrick and two directors
selected by the Company. All significant decisions related to Donlin Gold LLC require the approval of at least a majority of the
Donlin Gold LLC board members.
Changes in the Company’s
investment in Donlin Gold LLC are summarized as follows:
|
|
Three months ended February 28,
|
|
|
2019
|
|
2018
|
Balance – beginning of period
|
|
$
|
1,209
|
|
|
$
|
1,100
|
|
Share of losses
|
|
|
|
|
|
|
|
|
Mineral property expenditures
|
|
|
(1,310
|
)
|
|
|
(1,835
|
)
|
Depreciation
|
|
|
(13
|
)
|
|
|
(6
|
)
|
|
|
|
(1,323
|
)
|
|
|
(1,841
|
)
|
Funding
|
|
|
897
|
|
|
|
1,734
|
|
Balance – end of period
|
|
$
|
783
|
|
|
$
|
993
|
|
The following amounts
represent the Company’s 50% share of the assets and liabilities of Donlin Gold LLC. Donlin Gold LLC capitalized as
Non-current
assets: Mineral property
the initial contribution of the Donlin Gold property with a carrying value of $64,000, resulting in
a higher carrying value of the mineral property than the Company.
|
|
At
February 28,
2019
|
|
At
November 30, 2018
|
Current assets: Cash, prepaid expenses and other receivables
|
|
$
|
1,076
|
|
|
$
|
1,872
|
|
Non-current assets: Property and equipment
|
|
|
79
|
|
|
|
10
|
|
Non-current assets: Mineral property
|
|
|
32,692
|
|
|
|
32,692
|
|
Current liabilities: Accounts payable and accrued liabilities
|
|
|
(372
|
)
|
|
|
(673
|
)
|
Non-current liabilities: Reclamation obligation
|
|
|
(692
|
)
|
|
|
(692
|
)
|
Net assets
|
|
$
|
32,783
|
|
|
$
|
33,209
|
|
NOTE 7 – PROMISSORY NOTE
The Company has a promissory
note payable to Barrick of $98,299, comprised of $51,576 in principal, and $46,723 in accrued interest at U.S. prime plus 2%. The
promissory note resulted from the agreement that led to the formation of Donlin Gold LLC, where the Company agreed to reimburse
Barrick for a portion of their expenditures incurred from April 1, 2006 to November 30, 2007. The promissory note and accrued interest
are payable from 85% of the Company’s share of revenue from future mine production or from any net proceeds resulting from
a reduction of the Company’s interest in Donlin Gold LLC. The carrying value of the promissory note approximates fair value.
NOTE 8 – FAIR VALUE ACCOUNTING
Financial instruments
measured at fair value are classified into one of three levels in the fair value hierarchy according to the significance of the
inputs used in making the measurement. The three levels of the fair value hierarchy are as follows:
Level 1
— Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets
or liabilities;
Level 2
— Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially
the full term of the asset or liability; and
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
Level 3
— Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
The Company’s
marketable equity securities are valued using quoted market prices in active markets and as such are classified within Level 1
of the fair value hierarchy. The fair value of the marketable equity securities was $893 at February 28, 2019 ($839 at November
30, 2018), calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by
the Company.
NOTE 9 – GENERAL AND ADMINISTRATIVE
EXPENSES
|
|
Three months ended February 28,
|
|
|
2019
|
|
2018
|
Share-based compensation (Note 10)
|
|
$
|
1,531
|
|
|
$
|
1,949
|
|
Salaries and benefits
|
|
|
1,664
|
|
|
|
1,679
|
|
Office expense
|
|
|
671
|
|
|
|
566
|
|
Corporate communications and regulatory
|
|
|
240
|
|
|
|
286
|
|
Professional fees
|
|
|
230
|
|
|
|
199
|
|
Depreciation
|
|
|
4
|
|
|
|
6
|
|
|
|
$
|
4,340
|
|
|
$
|
4,685
|
|
NOTE 10 – SHARE-BASED COMPENSATION
|
|
Three months ended February 28,
|
|
|
2019
|
|
2018
|
Stock options
|
|
$
|
922
|
|
|
$
|
948
|
|
Performance share unit plan
|
|
|
570
|
|
|
|
952
|
|
Deferred share unit plan
|
|
|
39
|
|
|
|
49
|
|
|
|
$
|
1,531
|
|
|
$
|
1,949
|
|
A summary of stock
options outstanding as of February 28, 2019 and activity during the three months ended February 28, 2019 are as follows:
|
|
Number of stock options (thousands)
|
|
Weighted- average exercise price per share
|
|
Weighted- average
remaining
contractual term
(years)
|
|
Aggregate
intrinsic
value
|
November 30, 2018
|
|
|
17,883
|
|
|
$
|
3.36
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,760
|
|
|
|
3.68
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,253
|
)
|
|
|
2.20
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(54
|
)
|
|
|
4.68
|
|
|
|
|
|
|
|
|
|
February 28, 2019
|
|
|
17,336
|
|
|
$
|
3.64
|
|
|
|
2.58
|
|
|
$
|
6,902
|
|
Vested and exercisable as of February 28, 2019
|
|
|
12,335
|
|
|
$
|
3.34
|
|
|
|
1.89
|
|
|
$
|
6,636
|
|
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
The following table
summarizes other stock option-related information:
|
|
Three months ended February 28,
|
|
|
2019
|
|
2018
|
Weighted-average assumptions used to value stock option awards:
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
46.9
|
%
|
|
|
50
|
%
|
Expected term of options (years)
|
|
|
4
|
|
|
|
3
|
|
Expected dividend rate
|
|
|
—
|
|
|
|
—
|
|
Risk-free interest rate
|
|
|
2.7
|
%
|
|
|
1.8
|
%
|
Expected forfeiture rate
|
|
|
3.1
|
%
|
|
|
2.3
|
%
|
Weighted-average grant-date fair value
|
|
$
|
1.46
|
|
|
$
|
1.35
|
|
As of February 28,
2019, the Company had $4,970 of unrecognized compensation cost related to 5,001,060 non-vested stock options expected to be recognized
and vest over a period of approximately 2.75 years. During the three months ended February 28, 2019, the intrinsic value of stock
options exercised was $2,867 and no cash was received.
Performance share units
A summary of PSU awards
outstanding as of February 28, 2019 and activity during the three months ended February 28, 2019 are as follows:
|
|
Number of PSU awards (thousands)
|
|
Weighted- average grant day fair value per award
|
|
Aggregate
intrinsic
value
|
November 30, 2018
|
|
|
1,797
|
|
|
$
|
4.39
|
|
|
|
|
|
Granted
|
|
|
803
|
|
|
|
3.67
|
|
|
|
|
|
Vested
|
|
|
(764
|
)
|
|
|
4.58
|
|
|
|
|
|
Performance adjustment
|
|
|
(167
|
)
|
|
|
4.58
|
|
|
|
|
|
February 28, 2019
|
|
|
1,669
|
|
|
$
|
3.76
|
|
|
$
|
6,415
|
|
As of February 28,
2019, the Company had $4,309 of unrecognized compensation cost related to 1,669,100 non-vested PSU awards expected to be recognized
and vest over a period of approximately 2.75 years.
The following table
summarizes other PSU-related information:
|
|
Three months ended February 28,
|
|
|
2019
|
|
2018
|
Performance multiplier on PSUs vested
|
|
|
82
|
%
|
|
|
—
|
%
|
Common shares issued (thousands)
|
|
|
438
|
|
|
|
—
|
|
Total fair value of common shares issued
|
|
$
|
1,607
|
|
|
$
|
—
|
|
Withholding tax paid on PSUs vested
|
|
$
|
1,197
|
|
|
$
|
—
|
|
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
NOTE 11 – OTHER INCOME (EXPENSE)
|
|
Three months ended February 28,
|
|
|
2019
|
|
2018
|
Interest income
|
|
$
|
1,042
|
|
|
$
|
240
|
|
Accretion of notes receivable
|
|
|
795
|
|
|
|
—
|
|
Interest expense on promissory note
|
|
|
(1,798
|
)
|
|
|
(1,494
|
)
|
Foreign exchange gain (loss)
|
|
|
(386
|
)
|
|
|
(116
|
)
|
Change in fair market value of marketable securities
|
|
|
44
|
|
|
|
—
|
|
|
|
$
|
(303
|
)
|
|
$
|
(1,370
|
)
|
NOTE 12 – RELATED PARTY TRANSACTIONS
The Company provided
technical services to Donlin Gold LLC for $nil during the three months ended February 28, 2019 ($181 in 2018). As of February 28,
2019, the Company has accounts receivable from Donlin Gold LLC of $247 (November 30, 2018: $247).
NOTE 13 – COMMITMENTS AND CONTINGENCIES
General
Estimated losses from
loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates
that it is probable that a liability could be incurred, and the amount of the loss can be reasonably estimated. Legal expenses
associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure
of the loss contingency and estimated range of loss, if determinable, is made in the financial statements when it is at least reasonably
possible that a material loss could be incurred.
Obligations
under operating leases
The Company leases
certain assets, such as office equipment and office facilities, under operating leases expiring at various dates through 2023.
Future minimum annual lease payments are $169 in 2019, $199 in 2020, $204 in 2021, $210 in 2022, and $18 in 2023, totaling $800.
Item 2.
|
|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
In
Management’s Discussion and Analysis of Financial Condition and Results of Operations, “NOVAGOLD”, the “Company”,
“we,” “us” and “our” refer to NOVAGOLD RESOURCES INC. and its consolidated subsidiaries. The
following discussion and analysis of our financial condition and results of operations constitutes management’s review of
the factors that affected our financial and operating performance for the three-month periods ended February 28, 2019 and February
28, 2018. This discussion should be read in conjunction with the condensed consolidated interim financial statements and notes
thereto contained elsewhere in this report and our Annual Report on Form 10-K for the year ended November 30, 2018, as well as
other information we file with the Securities and Exchange Commission on EDGAR at www.sec.gov
and with Canadian Securities
Administrators on SEDAR at www.sedar.com
.
References herein to $ refer to United States
dollars and C$ to Canadian dollars.
Overview
Our
operations primarily relate to the delivery of project milestones, including the achievement of various technical, environmental,
sustainable development, external affairs/community engagement, economic, and legal objectives; obtaining necessary permits, completion
of feasibility studies, preparation of engineering designs and obtaining financing to fund these milestones.
Our
goals for 2019 include:
|
·
|
Advance the Donlin Gold project toward a construction/production decision.
|
|
·
|
Maintain an effective corporate social responsibility program.
|
|
·
|
Promote a strong safety culture; maintain a zero lost time accident record.
|
|
·
|
Safeguard the Company’s treasury.
|
First
quarter highlights
Donlin Gold project
The final approval
of the Donlin Gold Reclamation and Closure Plan and final Waste Management Permit were issued on January 18, 2019. The Alaska Department
of Natural Resources’ (ADNR) Division of Mining, Land, and Water (DMLW) issued preliminary land use decisions for public
comment proposing to authorize facilities associated with the project’s transportation corridor, including the access road
and related material sites, airstrip, and upriver Jungjuk Port on January 28, 2019. The public comment period for these decisions
closed on March 29, 2019. Also on January 28, 2019, ADNR’s Division of Oil and Gas (DOG), State Pipeline Coordinator’s
Section issued a preliminary decision to authorize the sections of the pipeline on State lands. The public comment period for this
decision closed on March 22, 2019. In late February, DMLW and DOG, began a series of six public meetings on their preliminary
decisions (Anchorage, Bethel, Aniak, McGrath, Tyonek, and Skwenta Roadhouse).
ADNR’s approval of the Alaska Dam Safety
certificates for the tailings facility and water retention and diversion structures requires a thorough stepwise process to deliver
a Final Construction Package. The next step in the process is a site investigation and collection of high-quality geotechnical
information for the advancement of the engineering from a feasibility level to the final construction package. The site investigation
information will support a preliminary design package, detailed design package and ultimately the final construction package each
of which will be submitted to ADNR for final approval and issuance of the certificates. We are currently in the advanced planning
stage for the 2019/2020 field program. This program will consist of geotechnical core drilling, test pits, overburden drilling,
packer tests, hydrogeologic test well installation and pumping tests, and geophysical surveys.
The
Donlin Gold LLC board must approve a construction program and budget before the Donlin Gold project can be developed. The timing
of the required engineering work and the Donlin Gold LLC board’s approval of a construction program and budget, the receipt
of the remaining state governmental permits and approvals, and the availability of financing, commodity price fluctuations, risks
related to market events and general economic conditions among other factors, will affect the timing of and whether to develop
the Donlin Gold project.
During 2018, a group
called the Yukon-Kuskokwim River Alliance (YKRA) was formed with the purpose of protecting salmon habitat in the Yukon-Kuskokwim
Delta. This organization along with 12 of the 56 village councils in the Calista Region (Native Village of Kasigluk, Orutsararmiut
Native Council (ONC), Native Village of Eek, Tuluksak Native Community, Tununak Council, Native Village of Nunapitchuk, Chuloonawick
Tribal Council, Native Village of Kwigillingok, Native Village of Kongiganak, Chefornak Traditional Council, Chevak Native Village,
and Native Village of Napakiak) have adopted resolutions opposing development of the Donlin Gold project.
Earthjustice, speaking on behalf of ONC, Akiak
Native Community IRA Council, Organized Village of Kwethluk, Native Village of Kwigillingok, Chuloonawick Tribal Council, and the
YKRA, requested an informal review of the State of Alaska’s 401 certification by the Director of the Division of Water in
the Alaska Department of Environmental Conservation (ADEC). In October 2018, the Director responded to the request by deciding
to conduct the informal review and a decision is expected in the second half of 2019.
On February 7, 2019, Earthjustice filed an administrative appeal of the Reclamation and Closure Plan Approval.
ADNR is expected to issue a decision on the appeal in the second half of 2019. Also on February 7, 2019, Earthjustice requested
an informal review by the Director of ADEC’s Division of Water of the Waste Management Permit issuance. The request for review
was granted by ADEC on March 1, 2019 and a decision is expected in the second half of 2019.
Donlin
Gold LLC, with support from NOVAGOLD and Barrick, remains actively engaged in environmental sustainability projects and extensive
outreach efforts with local stakeholders, through multiple traditional village council meetings, regional tribal gatherings, events
and village visits across the Yukon-Kuskokwim (Y-K) region. Donlin Gold LLC collaborated with Calista and TKC (owners of the mineral
and surface rights, respectively) on grants, scholarships and community outreach efforts.
The owners of the Donlin
Gold project (Barrick and NOVAGOLD) continue to study ways to further improve the project’s value and to reduce initial capital
outlays through enhanced project design and execution, engagement of third-party operators for certain activities, and potential
for financing of some capital-intensive infrastructure. To date, these additional studies have identified opportunities that have
the potential to benefit the project were the owners to decide to update the Donlin Gold feasibility study and initiate the engineering
work necessary to advance the project design from feasibility level to basic and then detailed engineering. Barrick and NOVAGOLD
will take all this work into account before reaching a construction decision and will advance the Donlin Gold project in a financially-disciplined
manner with a strong focus on environmental stewardship and social responsibility.
Our share of funding for the Donlin Gold project
in the first quarter of 2019 was $0.9 million for permitting and community engagement efforts. Our share of the total 2019 work
program and budget is $13 million to continue to advance the project. The Alaska Dam Safety certificates require additional fieldwork
and more detailed engineering over the next two years and Donlin Gold will continue to maintain its engagement with communities
throughout the Y-K region.
We record our interest
in the Donlin Gold project as an equity investment, which results in our 50% share of Donlin Gold’s expenses being recorded
in the income statement as an operating loss. The investment amount recorded on the balance sheet primarily represents unused funds
advanced to Donlin Gold.
Outlook
We
do not
currently generate operating cash flows. At February 28, 2019, we had cash and cash equivalents of $22.8 million
and term deposits of $139.0 million. At present, we believe that these balances are sufficient to cover anticipated funding of
the Donlin Gold project and corporate general and administrative costs. Additional capital will be necessary if a decision to commence
engineering and construction is reached for the Donlin Gold project. Future financings to fund construction are anticipated through
debt, equity, project specific debt, and/or other means. Our continued operations are dependent on our ability to obtain additional
financing or to generate future cash flows. However, there can be no assurance that we will be successful in our efforts to raise
additional capital on terms favorable to us, or at all.
For further information, see the
r
isk factors in our Annual Report on Form 10-K for the year ended November 30, 2018,
as
filed with the SEC and the Canadian Securities Regulators on January 23, 2019.
For the
full
year, we expect to spend approximately $24 million, including $13 million to fund our share of expenditures at the Donlin Gold
project and $11 million for general and administrative costs.
Summary of Consolidated Financial
Performance
|
|
Three months ended February 28,
|
($ thousands, except per share)
|
|
2019
|
|
2018
|
Loss from operations
|
|
$
|
(5,663
|
)
|
|
$
|
(6,526
|
)
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(6,323
|
)
|
|
|
(7,962
|
)
|
Net loss from discontinued operations
|
|
|
—
|
|
|
|
(253
|
)
|
Net loss
|
|
$
|
(6,323
|
)
|
|
$
|
(8,215
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
Discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
Results of Operations
First quarter 2019 compared to 2018
Loss
from
operations
decreased from $6.5 million in 2018 to $5.7 million in 2019 due to lower general and administrative expense and
lower costs at Donlin Gold LLC. General and administrative expense decreased by $0.3 million primarily due to lower share-based
compensation costs. At Donlin Gold expenses decreased by $0.5 million resulting from a reduction in permitting and optimization
activities.
Net loss from continuing operations
decreased
from $8.0 million ($0.03 per share) in 2018 to $6.3 million ($0.02 per share) in 2019, primarily due to lower operating losses,
higher interest income and accretion of notes receivable, offset by higher interest expense on the promissory note payable to Barrick
and foreign exchange losses.
Net loss from discontinued
operations, net of tax
of $0.3 million ($0.00 per share) in 2018 resulted from our share of expenses at the Galore Creek project.
On July 27, 2018, we completed the sale of our 50% interest in the Galore Creek Partnership (GCP).
Liquidity, Capital Resources and Capital
Requirements
|
|
At
|
|
At
|
|
|
($ thousands)
|
|
February 28, 2019
|
|
November 30, 2018
|
|
Change
|
Cash and cash equivalents
|
|
$
|
22,777
|
|
|
$
|
21,004
|
|
|
$
|
1,773
|
|
Term deposits
|
|
$
|
139,000
|
|
|
$
|
146,000
|
|
|
$
|
(7,000
|
)
|
In the first
quarter
of 2019, total
Cash, cash equivalents
and
Term deposits
decreased by $5.2 million of which $4.3 million was used
in operating activities for administrative costs and working capital changes and $0.9 million was used to fund Donlin Gold. The
term deposits are denominated in U.S. dollars and are held at Canadian chartered banks.
|
|
Three months ended February 28,
|
($ thousands)
|
|
2019
|
|
2018
|
Net cash (used in) provided from:
|
|
|
|
|
|
|
|
|
Operating activities of continuing operations
|
|
$
|
(3,150
|
)
|
|
$
|
(4,642
|
)
|
Investing activities of continuing operations
|
|
$
|
6,103
|
|
|
$
|
(1,747
|
)
|
Financing activities of continuing operations
|
|
$
|
(1,197
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash used in:
|
|
|
|
|
|
|
|
|
Investing activities of discontinued operations
|
|
$
|
—
|
|
|
$
|
(643
|
)
|
First quarter 2019 compared to 2018
Net cash used in
operating activities of continuing operations
decreased by $1.5 million, due to higher interest income and changes in working
capital.
Net cash provided from (used in) investing activities of continuing operations
included a $7.0 million reduction
in term deposits in the first quarter of 2019 and Donlin Gold funding decreased by $0.8 million due to lower permitting and optimization
activities. In the first quarter of 2019,
Net cash used in financing activities of continuing operations
related to withholding
taxes paid on vested performance share units.
Outstanding share data
As of March 26, 2019, the Company had 325,242,605
common shares issued and outstanding. Also, as of March 26, 2019, the Company had: i) a total of 17,010,660 stock options outstanding;
9,135,960 of those stock options with a weighted-average exercise price of C$4.37 and the remaining 7,874,700 with a weighted-average
exercise price of $4.07; and ii) 1,669,100 performance share units and 275,223 deferred share units outstanding. Upon exercise
of the foregoing convertible securities, the Company would be required to issue a maximum of 19,789,533 common shares.
Accounting Developments
For a discussion of
Recently Issued Accounting Pronouncements, see Note 2 to the Condensed Consolidated Interim Financial Statements.